Judge gives Microsoft big win in 'Vista Capable' case

A federal judge Wednesday stripped class-action status from the "Vista Capable" lawsuit that has plagued Microsoft Corp. for nearly two years, but will allow the plaintiffs to continue to sue the company separately.

The split decision does not put an end to the lawsuit, but it will make it much more difficult for consumers to press their cases.

Not surprisingly, Microsoft applauded the news. "We're pleased that the court granted our motion to decertify the class, leaving only the claims of six individuals," said Microsoft spokesman David Bowermaster in an e-mail late Wednesday. "We look forward to presenting our case to the jury, should the plaintiffs elect to pursue their individual claims."

In a ruling on two motions that Microsoft made in November, U.S. District Court Judge Marsha Pechman granted a motion to decertify the class but denied the company's motion for summary judgment.

The consumers who brought the original lawsuit, and those who followed as members of the class action, will be free to continue their cases, but they will have to do it individually, not as a group, Pechman said. "Approximately one year ago, this Court certified a class in this matter and allowed Plaintiffs 'to further develop their price inflation theory,'" Pechman said. "It is now apparent that class treatment is no longer appropriate."

Later in the ruling, she spelled out what that meant: "Plaintiffs may only pursue their claims individually."

Pechman's ruling comes almost exactly a year after she granted the case class-action status. At that time, she said that the plaintiffs could not collectively claim that Microsoft had deceived them with its Vista Capable marketing program, since that would have required an individual determination for each member of the class. Instead, said Pechman, they could pursue a "price inflation" line of reasoning, which would argue that PC buyers paid more than they would have otherwise, after Microsoft's campaign boosted demand and increased the prices of systems that could run Vista Home Basic.

On Wednesday Pechman shot down the price inflation concept, saying that the plaintiffs had failed to prove any inflation existed. "Plaintiffs evidence fails to establish class-wide causation because it does not attempt [to] identify a specific shift in the demand for Vista Capable PCs," Pechman said.

In several places in her ruling, Pechman said the plaintiffs' expert witness, University of Washington economist Keith Leffler, did not, or was unable to, come up with any data to support the price inflation theory. In earlier testimony, Leffler had pegged the possible damages to Microsoft at $8.5 billion.

"Dr. Leffler did not attempt any regression analysis, much less an econometric analysis of the impact of 'Vista Capable' on demand," Pechman said. "It is ... critical to Plaintiffs' theory of proof to isolate Microsoft's purportedly deceptive efforts to increase demand from promotions OEMs had in the run up to the holiday season."

In Pechman's view, Leffler failed to do so. "It does not appear as if Dr. Leffler tested this assumption against any real pricing data for PCs, nor did he survey consumers of non-Premium Ready PCs," she said.

Wednesday's rulings did not all go Microsoft's way, however, as Pechman rejected Microsoft's second motion, which was a request for summary judgment on whether the Home Basic edition can fairly be called "Vista."

The idea that Home Basic was not, in fact, a "true" version of Vista has been a key all along to the plaintiffs' case. The original lawsuit, filed in April 2007, accused Microsoft of deceiving consumers by letting PC makers slap the "Vista Capable" sticker on PCs when many of those machines could run only Home Basic. The plaintiffs argued that because Home Basic lacked many of the flashy features Microsoft had promoted in Vista -- most importantly, the Aero graphical user interface -- it was not really Vista.

Microsoft claimed it had repeatedly told users and the press that not all editions of the operating system were alike, and cited the similarities between Home Basic and the other versions.

Pechman rejected Microsoft's reasoning. "Simply put, Microsoft's argument misses the issue. The question is not whether Basic can be called 'Vista' based on computer code similarity or whether Microsoft as a software developer has the right to offer multiple permutations of its product; it is whether Microsoft's use of the 'Vista Capable' designation had the capacity to deceive," she said.

"In this sense, Microsoft's internal communications raise a serious question about whether customers were likely to be deceived by the Windows Vista Capable campaign," she added, referring to insider e-mails that were revealed during the case's discovery process.

One of the most notable such e-mails, and one which Pechman cited in her ruling, was from Jim Allchin, at the time a co-president of the company's platform product group and in charge of Vista's development and delivery. When another Microsoft executive decided to relax the eligibility rules for Vista Capable so that PCs equipped with older graphic chip sets made by Intel Corp. would qualify, Allchin went ballistic.

"I believe we are going to be misleading customers with the Capable program," Allchin said in e-mail from early 2006. "OEMs will say a machine is Capable, and customers will believe it will run all the core Vista features. The fact that Aero won't be there EVER for many of these machines is misleading to customers."

It's unclear if the lawyers leading the class-action lawsuit will continue the case with individual plaintiffs. Jeffrey Tilden, of Seattle-based law firm Gordon Tilden Thomas & Cordell LLP, did not respond to a request for comment. He and other attorneys at the firm who are involved in the case were in a meeting, presumably about the ruling, a receptionist at the firm said.

Copyright © 2009 IDG Communications, Inc.

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